Real Opportunities in Real Estate Continue to Pop Up

As my regular readers know, a key investment theme I have been playing within my personal portfolio is that the housing market will continue to be much stronger than most pundits predicted. My thesis is that the lockdowns and riots that have hit big cities amid the pandemic have pushed many individuals and families to a tipping point that is triggering an exodus from high-tax population centers such as New York City. Given how much life has changed in 2020 in these cities, you can hardly blame these pilgrims for seeking more space, less taxes and a more peaceful way of life. Frankly, if a horde of locusts descended on Miami most of the locals would take it in stride given this surreal year, although a hurricane hitting our coast at some point this season is a more likely possibility. We saw more evidence of the strength in the housing market on Tuesday, when it was reported that August existing home sales beat expectations and rose more than 10% on a year-over-year basis. Existing home sales have now hit their highest levels since 2006, which was during the height of the housing boom that triggered the financial crisis of 2008. Mortgage activity remains more than robust with purchase applications up 25% year over year. Homeowners also are taking advantage of historically low interest rates and mortgage refinancing applications are up more that 85% from their levels a year ago. This robust activity is obviously benefiting home builders. I would not be chasing my favorite homebuilder here, LGI Homes , after its recent massive rally, which has stalled out over the past two months. Beazer Homes USA Inc. is a bargain here and the shares look poised to move. The company just announced new July orders came in 26% above year-ago levels. August orders were up an impressive 48%. I still like some of the furniture makers as larger houses means great demand for beds, living room sets, outdoor furniture and the like. I would add to my holdings of Hooker Furniture and Ethan Allen Interiors on any dips in the market. Building supply makers such as recently profiled Summit Materials also are well-positioned. I probably wouldn't be chasing Home Depot after its big rise off its March meltdown lows. The company benefited from being an essential business during the lockdowns and from the extra money folks had in their pocket thanks to congressional largess. However, as the economy gains traction I am seeing less traffic at my local Home Depot than a few months ago and the shares seem pricy here. I have avoided the REIT sector during the pandemic. However, I am starting to wade back in a bit in this part of the market as I am seeing an uptick in insider purchases. The CEO of Chatham Lodging Trust , which I recently profiled, continues to buy up his own shares, adding more than $400,000 to his holdings last week on top of other recent purchases. I also have started to review JBG Smith Properties for a possible new investment. This is a REIT in Northern Virginia. JBG Smith shares have been hammered like most in the sector, but three directors added more than $1.7 million to their core holdings in August and September. The company will be leasing and managing Amazon.com's HQ2 buildings in the region. The federal government and its contractors are other big tenants, and regardless of the election's outcome the government never shrinks. JBG Smith does have some high leverage, but its balance sheet seems solid within its high-growth phase. In addition, only around 5% of its revenue comes from the retail sector and the shares pay a dividend of nearly 3.5%.

Real Opportunities in Real Estate Continue to Pop Up

Beazer Homes USA and JBG Smith Properties are two names that are worth looks in the real estate sector.

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